Comcast-TWC Deal: Playing All the Numbers

Unlike the big cable mergers of the past, Comcast is buying Time Warner Cable for more than TWC's cache of video subscribers. A lot more.

Although much of the early coverage of the proposed $45.2 billion deal has focused on the 11.2 million video subscribers that Time Warner Cable Inc. (NYSE: TWC) would add to Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s already market-leading stash of 21.7 million basic cable customers, that's far from the whole story.

That's because the North American cable business is now about non-video services at least as much, if not more than, it's about the traditional video services. (See Comcast's TWC Coup: 3 Things to Know.)

So let's play the numbers game here by looking at some other key numbers driving this deal, not just the usual video numbers. Then it will become clear just how dominant a force the planned Comcast-TWC combo could be.

Broadband subscribers
With an impressive total of 20.7 million high-speed data customers today, Comcast already leads the US cable broadband market by a wide margin. In fact, like most major North American MSOs, it now has nearly as many broadband customers as video customers. Throw in TW Cable's 11.1 million broadband subscribers and you've got a grand total of nearly 32 million high-speed data users, nearly as many as the 33 million video customers that the new company would inherit.

While Comcast executives have solemnly vowed to sell off 3 million video customers to cap the combined company's size at 30 million (or 30% of the US pay-TV homes) to ease federal antitrust concerns, they've said nothing about divesting any broadband subscribers. That's even though the combined company would control close to 40% of the US cable broadband market, well above the MSO's self-imposed 30% limit on the video end.

To be sure, most cable video subscribers are also cable broadband subscribers these days and vice versa. So it would be tough to divest one without the other. But, even if it sold off 3 million broadband homes, Comcast would still have a commanding broadband presence nationally.

Voice subscribers
Voice services don't get much attention (or respect) for cable operators anymore for some reason. But they are still huge, growing revenue generators for the industry, trailing only video and broadband. So they count for a lot in this deal as well.

With nearly 10 million VoIP customers, Comcast is already the fourth-biggest wireline phone company in the US. Toss in TW Cable's 4.8 million phone customers and you're talking about a total of almost 15 million subscribers, which is a formidable total.

Major metro markets
Similarly, Comcast already boasts cable operations in 20 of the 25 biggest metro areas across the US, including nearly every major market on the East Coast and many of those on the West Coast. But the two big markets that it doesn't dominate right now are the two largest in the country -- New York City and Los Angeles. Guess which ones TWC controls?

Besides the nation's two biggest cities, TW Cable would also bring Columbus, Cincinnati, Cleveland, Charlotte, Kansas City, Dallas, San Antonio, and part of San Diego into the Comcast fold, at least before the planned divestiture. So, with just a handful of exceptions like St. Louis (Charter Communications Inc. , New Orleans (Cox Communications Inc. ), and Tampa (Bright House Networks ), every NFL city would be a Comcast city.

The Proposed Comcast-TWC Goliath

If consummated, the proposed Comcast buyout of TWC would give the combined company control over huge swaths of the US, especially east of the Mississippi. This map from Mosaik shows the Comcast cable systems in red and the TWC systems in blue.

Business services revenues
Here's the pièce de résistance for Comcast in this deal. With business (enterprise/wholesale) services now the fourth-biggest revenue generator for major US MSOs, Comcast has become king of this category during the past three years. The MSO racked up a total of $3.2 billion in business revenues last year, up more than 26% from nearly $2.6 billion in 2012. (See Comcast Makes Middle Market Gains.)

TWC has been no slouch in this area either, though. It took in $2.3 billion in 2013, up 21% from nearly $1.9 billion the year before. So the combined company would instantly generate $5.5 billion in business services revenues, at least before divestiture. (See TWC: Charter's Got Nothing on Us.)

Even more importantly, perhaps, TWC would grant Comcast access to the New York City and Los Angeles commercial markets, the two biggest in the country. With control of those two markets and a true national presence for the first time, the combined company could not only sign up more small and midsize firms in those markets, but break into the large enterprise sector as well. That prospect should have AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) somewhat concerned.

Indeed, on the joint Comcast-TWC conference call with the press Thursday morning, Comcast Chairman and CEO Brian Roberts made a note of the enhanced competitive capabilities of the merged firm. He said the new Comcast would be better able to compete with other national and international companies for larger customers.

Re: M&A I believe Comcast does have some small pockets in Arizona, but Cox is the big providor, at least in Tucson and Phoenix. I found this map, I don't know how acurate and probably a little dated, but gives a picture of some of the coverage areas out there.

Re: New York It might be, true. I'm not entirely sure the plan all along wasn't to sell the second Glenn Britt left. DOCSIS 3.0 upgrades don't cost all that much, and you would think it would be something the company would want to invest in. But here we are in 2014 and only Los Angeles, NY and Kansas City (because of Google Fiber) are seeing any attention.

I do think the deal will pass. While I think the concerns about scale, leverage and dominance have merit (especially the use of content licensing deals and usage caps to hinder Internet video), it will be hard to prove them cleanly enough to be effective. I also bet Comcast has some theatrical conditions ready to go to make the deal sound more compelling than it is.

Re: M&A Ok, well its a little hard to read the fine print, it says something about DOCSIS serving areas, but I'm almost 100% sure they serve Hawaii and the coverage is most of the state, I also thought they were also in Arizona and Colorado but I'm less sure about what types of services and how much of coverage thoses states get. Same with Kansas, I know they are in Kansas City (which is not in Kansas) which is shown.

It's a minor detail, since in the end they are targeting about 30% which means they'll need to divest some of their current areas. The big question is which ones and to who?

Re: New York Yep. Sounds about right. I wonder if New Yorkers will get any better service from Comcast, tho. The diference might be so marginal as to go unnoticed. It's still sad to see how much TWC has gone downhill.

Re: M&A Yup, Cable Co's don't compete directly with each other, so I'm sure that will come up in the DoJ and FCC debates. However, I am interested to see what areas get given up and to whom. In my view, Comcast is a much more agile competitor. But TWC and Comcast already had a joint tech doc for moving forward with IP services so maybe it really doesn't matter anyway.

That graphic is off. It's missing at least one TWC area. Or is that the proposed company and the rest will be sold off?

Re: New York & Other Brief Thoughts It is a bold move by Comcast--no question. The smaller players (Cox/Charter et. al) will have their work cut out for them in terms of trying to stay relevant. Another affirmation of what Alan noted is reflected in this chart from our friends @ Business Insider. I did almost fell out of my chair in laughter at the claims by the folks @ Comast. Beyond this , though, I would humbly suggest though that the other part of the puzzle is control of content as Comcast continues to make inroads with its' ownership of NBC Universal. Beyond the reach as discussed in the discourse here, it is content that matters--and I suggest that ultimately it is content that is crucial. It is by no means certain that regulators will approve this right now....

Re: New York Time Warner Cable always took a "targeted" approach to DOCSIS 3.0 upgrades, whereas Comcast simply decided to get out ahead of the demand, largely because Comcast saw more FiOS competition in many markets. Comcast at least invests something back into the market. Time Warner Cable tells YOU what you want and if it doesn't meet their beliefs, too bad. Time Warner Cable is also behind Comcast in terms of set top boxes, GUIs, and feature set.

Both perform horribly in customer satisfaction rankings, but I do think Comcast is the better of two "evils."

A CSP's digital transformation involves so much more than technology. Crucial – and often most challenging – is the cultural transformation that goes along with it. As Sigma's Chief Technology Officer, Catherine Michel has extensive experience with technology as she leads the company's entire product portfolio and strategy. But she's also no stranger to merging technology and culture, having taken a company — Tribold — from inception to acquisition (by Sigma in 2013), and she continues to advise service providers on how to drive their own transformations. This impressive female leader and vocal advocate for other women in the industry will join Women in Comms for a live radio show to discuss all things digital transformation, including the cultural transformation that goes along with it.